The Enterprise Supply Chain View


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“The Enterprise Supply Chain View” is the first topic of a supply chain learning series that ScottMadden is presenting along with Shared Services & Outsourcing Network (SSON).

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The Enterprise Supply Chain View

  1. 1. Copyright © 2011 by ScottMadden. All rights reserved.The Enterprise Supply Chain ViewSSON Supply Chain Learning SeriesContact:
  2. 2. Copyright © 2011 by ScottMadden. All rights reserved.Table of Contents About ScottMadden Key Components of Supply Chain— Supply Chain Definition— Supply Chain Importance/Performance Gap— Planning and Forecasting— Strategic Sourcing— Procurement— Logistics— Materials Management— Accounts Payable Benefits of Supply Chain Best Practices Future Supply Chain Topics1
  3. 3. About ScottMadden
  4. 4. Copyright © 2011 by ScottMadden. All rights reserved.About ScottMaddenScottMadden has been helping clients create greater value for their corporate services organizations fornearly 30 years. Our highly efficient, collaborative teams employ measurable, award-winning methodsand deep cross-functional expertise to improve operational performance.3Finance &AccountingHumanResourcesInformationTechnologySupplyChainScottMadden canimprove processefficiency andautomation toensure accurateand timely financialinformation andcompliance.ScottMaddendesigns, builds, andimplements HRService Deliverymodels to ensureefficient andeffective HRoperations that meetbusiness needs.ScottMadden helpsorganizations createmeasurable IT valueby focusing onbusinessengagement toimprove IT decisionmaking.ScottMadden cancraft new supplychain strategies anddeliverimprovements inoperations,increasing the valuedelivered tocustomers.Corporate and Shared Services Practice
  5. 5. Copyright © 2011 by ScottMadden. All rights reserved.About ScottMadden (Cont’d)At ScottMadden, we work with clients on all of the activities shown below.4Supply ChainScottMaddenassists clientswith all aspectsof the enterprisesupply chain.Corporate and Shared Services PracticeSupply Chain Organization and Service DeliveryModel DesignDiagnostic Assessments and PlanningProcess ReengineeringStrategic SourcingWarehouse and Inventory ManagementSystems Design and Implementation
  6. 6. Key Components of Supply Chain
  7. 7. Copyright © 2011 by ScottMadden. All rights reserved.Raw MaterialsSupplierManufacturerCustomerEnd-UseConsumerLogistics and MaterialsManagementSupply Chain Definition6
  8. 8. Copyright © 2011 by ScottMadden. All rights reserved.Problem Statement Corporate leaders’ recognition of supply chain value continues to grow, but performance is still lagging.This disconnect is largely due to supply chain organizations’ inability to move beyond their “transactionalorigins” and focus on the areas in which the organization can extract the most value7Source: Survey from CFO Research ServicesShared Services Solution Supply chain, delivered asa shared service, facilitatescost reduction throughstandardization andeconomies of scale whileensuring alignment with thebusiness through acustomer-focused, metric-driven delivery modelSupply Chain Importance/Performance Gap
  9. 9. Copyright © 2011 by ScottMadden. All rights reserved.Key Components of Supply ChainThe six major supply chain functions are described below.8Performance ManagementInformation ManagementReturns to SuppliersSuppliersCustomersReturns from CustomersPlanning andForecasting•Planned demand•Forecastingunplanneddemand•Business supporttoolsStrategic Sourcing•Market and spendanalysis•Demandaggregation andsupplierconsolidation•Suppliernegotiations•Contract/suppliermanagementProcurement•Supplier setup•PO generation•Quotations –price/delivery•Ordermanagement•Supplier/customerinquiriesLogistics•Inbound logistics•Cross-docking(intra-company)•Outbound logistics•InvestmentrecoveryMaterialsManagement•Inventory planningand management•Warehousenumber andlocation•InternalwarehouseoperationsAccounts Payable•Invoice processing•Problem/disputeresolution•Disbursement
  10. 10. Copyright © 2011 by ScottMadden. All rights reserved.Planning and ForecastingPlanning and forecasting helps businesses more intelligently deploy resources.9Past FutureLowHighTimeUncertaintyThe more closely operationalpractices match proceduresand plans, the more accurateis the derivation of planneddemandVarious mathematical modelsgenerate the forecast.Planning must incorporatethe associated uncertaintyPastdemand istrackedandcollectedPresentUnplanned demand isanalyzed to understand itsproperties. Demand patternsare approximated withmathematical modelsPlanned demand is derivedfrom (and can bemanipulated by) proceduresand plans
  11. 11. Copyright © 2011 by ScottMadden. All rights reserved.Strategic SourcingThe six critical activities for executing strategic sourcing are shown below.10 Current spendprofile Future trends Operationalstrategies Cost drivers Forecastimprovements Specificationsanalysis AggregationpotentialSpend AnalysisMarketAnalysisSourcingStrategyCompetitiveProcessNegotiationandContractingContinuousImprovement Conductingsupplier andmarketresearch Evaluatingmarket forces Competitivebidding Directrenegotiation Auctioning RFPdevelopmentanddistribution Evaluationand selectionprocess Planning Execution SupplierRelationshipManagement― Scorecards― Policies― Procedures― Governance
  12. 12. Copyright © 2011 by ScottMadden. All rights reserved.11Spend Analysis Market Analysis Recommendations• Evaluate profile of historicalspending by supplier, plant,business unit, etc.• Develop future spend needs• Understand key cost drivers• Evaluate opportunities inexisting contracts• Understand supplier industrytrends• Identify key supplier base• Evaluate industry in terms ofmarket rivalry, buyer power,supplier power, new entrants,and substitutes• Determine best strategy:– Combine spend acrosswithin and across businessunits– Bundle materials / servicesprocured from key suppliers– Extend contract duration forbetter terms– Renegotiate with preferredsuppliers– Competitive bid– Standardize / simplifyspecificationsTo effectively execute the approach shown below, key resources must have the followingknowledge:• Supplier base• Contracting practices• User requirements• Technical specifications• Supplier performance• Market / category specificsA successful Strategic Sourcing program requires the right knowledge and adisciplined approach.Typical savings from this approach are 3-5% of total spendStrategic Sourcing (Cont’d)
  13. 13. Copyright © 2011 by ScottMadden. All rights reserved.Procurement serves as the primary processing area for the acquisition of materials and services.Procurement activities are characterized by the following: Highly transactional and mostly driven by technology automation Not many variations in the process Requisition reviews for purchases consistent with established business rules Supplier qualifications and basic supply/market evaluations System generated purchase order reviews12ProcurementRequisitions from customersCoordination w/customers1. Supplier setup2. PO generation3. Quotations – price/delivery4. Order management5. Supplier/customer inquiriesPOs to suppliersInquiries from suppliersSupplier – Buyer InteractionsProcurement:Supplier Setup, PO Generation, and Quotations
  14. 14. Copyright © 2011 by ScottMadden. All rights reserved.Procurement:Order Management and InquiriesEffective order management allows the procurement function to meet the customer’s expectations.13CustomerRequisitionPlacedOrderConfirmedOrderProcessedOrderDeliveredProcurementPOs to suppliersInquiries from suppliersAdditional activities include the following: Tracking and order status actions including customer communications Coordination with suppliers and transportation, import, and inspection providersto ensure timely and accurate order delivery Expediting deliveries for emergency needs Responses to supplier and customer questions for POs, invoices, proof-of-deliveries, additional documentation, etc.Requisitions from customersCoordination w/customers1. Supplier setup2. PO generation3. Quotations – price/delivery4. Order management5. Supplier/customer inquiries
  15. 15. Copyright © 2011 by ScottMadden. All rights reserved.LogisticsLogistics connects all key points in the supply chain and is characterized by the following activities:14Logistics Cost - % of U.S. GDPSource: CSCMP’s State of Logistics Report, June 2010 Transportation mode (freight, rail, parcel,air, etc.) and carrier selection Service level analysis and carrier contractmanagement Claims (missing or damaged product)management Returns processing and obsolete/scrapsales
  16. 16. Copyright © 2011 by ScottMadden. All rights reserved.Logistics:TransportationTransportation management and optimization seeks to cost effectively deliver products on-time andundamaged.15Transportation activities are characterized by the following: Transportation mode optimization (e.g., shipment planning and consolidation) Route / equipment optimization (e.g., delivery point consolidation, reducing miles, and right-sizing loads) Transportation vendor negotiation and contracting (e.g., core carriers and negotiated rates) On-time delivery, quality shipment, and cost monitoringTransportmodeselected• Freight (TL or LTL)• Parcel• Rail• Ship• AirServiceleveldetermined• Same-day• Next-day• One-weekCarrierselected• Internal (cross-dock)• UPS• FedEx Freight• BrokerShipment istracked todelivery• In-transit tracking• Advanced shippingnoticeClaimsmanaged• Missing parts• Damaged items• Incorrect material
  17. 17. Copyright © 2011 by ScottMadden. All rights reserved.Logistics:Reverse LogisticsReverse logistics is the process for handling returns from customers and returns to suppliers.16Reverse logistics activities are characterized by the following: Surplus asset identification and appraisals Demolition and dismantlement coordination (and associated environmental and safety considerations) Surplus asset disposal Marketing and sales coordination Contract administrationReverse supplychain flowidentified• Returned from customer• Surplus or obsolete• Inoperable• DamagedItem evaluatedand dispositiondetermined• Inventory• Return to supplier• Third-party sale• Scrap• DonateDispositioncoordinated• Market evaluation• Supplier coordination• Marketing and sales• ContractingFinaldispositionexecuted• Logistical coordination• Payment and indemnityterms• System adjustment
  18. 18. Copyright © 2011 by ScottMadden. All rights reserved.Materials Management The supply chain’s role as an enabler of business strategy is easy to see in materials management, whichincludes responsibilities like:— Inventory planning and management: managing the inventory investment in a manner thatminimizes costs while supporting required service levels— Warehouse number and location: determining how many warehouses are in the distributionnetwork, where they are located, and how they are designed— Internal warehouse operations: managing the people and processes that dictate the flow ofmaterial and information within the warehouse Materials management is responsible for what is often one of a company’s largest assets, the inventory, andis typically an area of highly variable and multi-directional activity Many physical “touches” and a large amount of an organization’s work occur in materials management17Materialsmanagement Returns from CustomersShipments to customersReturns to SuppliersShipments from suppliers
  19. 19. Copyright © 2011 by ScottMadden. All rights reserved.The inventory planning and management processAn illustration of purchase quantity (PQ), re-order point (ROP), lead time usage, and safety stock appearsbelowSafety stock levels (the buffer againstdemand variability) are set using statisticalcalculations based upon the demandforecast, demand variability, and a desiredservice levelMaterials Management:Inventory Planning and Management18Demand forecast• Demand is tracked• Demand patterns(variability,seasonality, etc.) aremathematicallyapproximated• Demand isforecastedStocking decisionand service level• Stocking decisionsconsider desireddelivery andavailability• Service levelrequirements drivere-order points(ROP)Order quantity• Order quantities aredetermined basedon a variety offactors• The primary goal isto order in quantitiesthat minimizeoperational costsRe-classification• Demand forproducts changesover time• Forecasts, stockingdecisions, servicelevels, and orderquantities must beperiodicallyrefreshedAccounting andcontrol• Inventory accuracyis key to achievingdesired servicelevels• The inventory assetis often significantand must beregularly accountedfor
  20. 20. Copyright © 2011 by ScottMadden. All rights reserved.Materials Management:Inventory Planning and Management (Cont’d)Inventory optimization is about having: The right materials – work orders, BOMs In the right quantities – inventory levels, service levels At the right place – which warehouse, where in the warehouse At the right time – demand forecasting, lead times For the right price – procurement and strategic sourcingImproving inventory management requires participation of many stakeholders with clear decision rights.A leading practice allocation is reflected in the table below.19Business UnitsStrategic Sourcing /ProcurementMaterialsManagementInventoryManagement What materials do weneed? Which suppliers will weuse? How do we receive andissue effectively? How much should wekeep on hand? How much do we need?  How much should wepay? Where will it be storedin the warehouse? In which warehouseshould it be stored? When do we need it?  How do we ensuresupply? Is the shelf countaccurate? From where shouldeach request be drawn? Where will we use it?  What are the expectedlead times? Is it maintainedadequately? What is our risktolerance? Who will deliver it?When?
  21. 21. Copyright © 2011 by ScottMadden. All rights reserved.Accounts Payable:Linkage to Supply ChainThere are several factors that influence the relationship between supply chain and AccountsPayable. Purchase Orders (POs) must reflect end-user requirements and be clear to suppliers Supplier shipments and invoices should “match” the PO Products sent to end-users and confirmations to AP should accurately reflect the shipment Payments should “match” the PO, invoice, and confirmation and be clear to suppliers20
  22. 22. Benefits of Supply Chain Leading Practices
  23. 23. Copyright © 2011 by ScottMadden. All rights reserved.Summary of Leading Practice BenefitsImprovement Area Performance ImpactMaterial/service costs Reduce costs 5%-12% through informed strategic sourcing strategies.Supplier management Eliminate duplicative suppliers (reduction depends on previous efforts).Contract compliance Improve compliance 55%. Save 7% through use of contract pricing.Inventory managementCut excess stocks >50%. Lower inventory costs 5%-50%. Reduce expeditingcosts.Product managementCut unnecessary part introductions by 20%. Increase part reuse. Align designand supply strategies. Facilitate early supplier integration.Process cyclesReduce spend analysis project cycles 30% to 50%. Refocus sourcing andbusiness managers on strategic tasks.Leading practice supply chain organizations utilize the following to improve performance: Documented key performance indicators and goals used to evaluate and improve integrated processes Standardized processes and forms to buy goods and services Centralized procurement and payables organization Automated purchase order processing to improve cycle times and drive cost savings Optimized supplier base and inventory levelsIncluded below is a summary of savings benefits from leading practice adoption1.Source: Aberdeen Group Study, “Best Practices in Spending Analysis.”22
  24. 24. Future Supply Chain Topics
  25. 25. Copyright © 2011 by ScottMadden. All rights reserved.Future Supply Chain TopicsThe ScottMadden and SSON Supply Chain Series will also include the following topics: Topic 2: How Procure-to-Pay (P2P) Fits Within an Enterprise Supply Chain— This topic will focus on the key attributes of a successful P2P transformation and the role technologyplays in enabling the capture of the synergies and savings associated with P2P in a shared servicesdelivery model Topic 3: Supply Chain Governance— This topic will explore the key building blocks of effective supply chain governance models includingdecision rights, performance metrics, service level agreements, and issue escalation/resolution. Wewill also present methods to create alignment across an enterprise for a consistent supply chainstrategy that clearly differentiates transactional efficiency from higher-value, strategic activitiesPerformance ManagementInformation ManagementReturns to SuppliersSuppliersCustomersReturns from CustomersPlanning andForecasting• Planned demand• Forecastingunplanned demand• Business supporttoolsStrategic Sourcing• Market and spendanalysis• Demand aggregationand supplierconsolidation• Supplier negotiations• Contract/suppliermanagementProcurement• Supplier setup• PO generation• Quotations –price/delivery• Order management• Supplier/customerinquiriesLogistics• Inbound logistics• Cross-docking (intra-company)• Outbound logistics• Investment recoveryMaterialsManagement• Inventory planningand management• Warehouse numberand location• Internal warehouseoperationsAccounts Payable• Invoice processing• Problem/disputeresolution• Disbursement24
  26. 26. For more information on ScottMadden and the enterprise supply chain, please contact us.Contact UsBenjamin FosterManaging AssociateScottMadden, Inc.3495 Piedmont Rd, Bldg 10Suite 805Atlanta, GA 30305Phone: 404-814-0020benjaminfoster@scottmadden.comAndy FloresPartnerScottMadden, Inc.3495 Piedmont Rd, Bldg 10Suite 805Atlanta, GA 30305Phone: 404-814-0020aeflores@scottmadden.com25